China Trade Shows Sluggish Demand While Weaker Yuan Softens Blow

Updated on
China Trade Shows Sluggish Demand
  • Exports fell 4.8% in dollar terms, imports drop 8.4%
  • Trade numbers look better in yuan terms as depreciation helps

China’s exports and imports slipped in dollar terms in June as soft demand at home and abroad continues to weigh on the world’s largest trading nation.

Key Points

  • Overseas shipments fell 4.8 percent from a year earlier, imports dropped 8.4 percent 
  • Trade surplus slips slightly to $48.11 billion
  • Both exports and imports in yuan terms looked better, with outbound shipments eking a small gain, reflecting the influence of a weakening currency

Big Picture

The yuan posted a fifth straight drop last week, the longest losing streak this year, signaling policy makers are more tolerant of further weakening. With tepid global demand and businesses proving reluctant to invest, the government has been stepping up spending to keep its growth target of at least 6.5 percent this year in sight.

Economist Takeaways

"It’s still very weak trade," said Iris Pang, senior economist for Greater China at Natixis SA in Hong Kong. "I don’t think there will be a significant improvement and I expect heavier and speedier fiscal stimulus in the second half."

"With little support from global demand, China will be constrained to retain an easing bias in domestic policy," Bloomberg Intelligence economists Tom Orlik and Fielding Chen wrote in a note. "Yuan weakness has bolstered competitiveness and prevented a sharper slide in overseas sales. In the immediate future, though, the central bank may be forced to lean against excess depreciation pressure. The risk of Brexit aftershocks add to the gloom on the export outlook."

The Details

  • China sees "obvious" obstacles in foreign trade amid a severe and complex environment, the customs administration said in a statement accompanying the data.
  • Exports face downward pressure in the third quarter, a customs administration official said at a briefing in Beijing. Trade will remain sluggish, though may continue to stabilize in the second half, the official said, adding that exporters face increasing labor costs while other countries are competing with cheaper wages.
  • Exports to U.S. fell 10.4 percent, while those to Brazil plunged 21.5 percent.
  • Imports from Canada slumped 44.6 percent, and from U.S. dropped 12.7 percent.

— With assistance by Xiaoqing Pi, and Enda Curran

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